IS YOUR AP PERFORMANCE TOP TIER?

Transcription

1 FALL 2017 IS YOUR AP PERFORMANCE TOP TIER? HOW TO USE KEY METRICS TO CHART YOUR AP IMPROVEMENT JOURNEY Jess Scheer, Editor

2 CONTENTS INTRODUCTION... 5 How to Use This Report... 6 How to Build and Use a Measurement Dashboard... 6 Additional Notes... 8 Where Does My Journey Begin?... 9 CAPTURING EARLY PAY DISCOUNTS Potential for Early Discounts Opportunity for Early Discount Share of Discounts Captured EFFICIENCY: HOW FAST IS YOUR PROCESS? Invoices Per FTE Paid on Time Cost Per Invoice Staff Leverage Ratios EFFECTIVENESS: HOW GOOD IS YOUR PROCESS? PO First Pass Match Rate Share of PO Invoices With a Mismatch Share of PO Invoices Requiring Correction Share of Duplicate Payments APPENDIX Survey Demographics Relevant Survey Questions and Definitions About IOFM... 27

3 TABLE OF FIGURES FIGURE 1. AP Performance Key Performance Indicators...6 FIGURE 2. Example Blank KPI Dashboard Template...6 FIGURE 3. Respondents Split by Degree of Centralization...9 FIGURE 4. Respondents Split by Degree of Automation...9 FIGURE 5. Correlation between Centralization and Automation, Top Performers...10 FIGURE 6. Correlation between Centralization and Automation...10 FIGURE 7. Correlation between Centralization and Automation, by Performance...10 FIGURE 8. Share of Invoices Offering Discounts, Split by Structure...11 FIGURE 9. Share of Invoices Offering Discounts, Split by Automation...11 FIGURE 10. Typical Size of Discount, Split by Structure...12 FIGURE 11. Typical Size of Discount, Split by Automation...12 FIGURE 12. Share of Discounts Captured, Split by Structure...13 FIGURE 13. Share of Discounts Captured, Split by Automation...13 FIGURE 14. Annual Number of Invoices Per FTE, Detailed Peer Group Analysis, Split by Structure...15 FIGURE 15. Invoices Per FTE, Split by Automation...15 FIGURE 16. Share Who Pay > 90% of Their Invoices on Time, Split by Automation...16 FIGURE 17. Paid on Time (PO), Split by Structure...16 FIGURE 18. Paid on Time (OP), Split by Automation...17 FIGURE 19. Paid on Time (Non-PO), Split by Structure...17 FIGURE 20. Paid on Time (Non-PO), Split by Automation...19 FIGURE 21. Cost Per Invoice, Overall...19 FIGURE 22. Cost Per invoice, Split by Automation...19

4 Table of figures (cont.) FIGURE 23. Manager to Specialist Ratio, Split by Structure...20 FIGURE 24. Staff Ratios, Split by Structure...20 FIGURE 25. Staff Ratios, Split by Automaton...20 FIGURE 26. PO First Pass Match Rate, by Structure...21 FIGURE 27. PO First Pass Match Rate, by Structure, Split by Automation...21 FIGURE 28. Share of PO Invoices with a Mismatch, Split by Structure...22 FIGURE 29. Share of PO Invoices with a Mismatch, by Structure, Split by Automation...22 FIGURE 30. Share of PO Invoices Requiring a Correction, Split by Structure...23 FIGURE 31. Share of PO Invoices Requiring a Correction, Split by Automation...23 FIGURE 32. Share of Duplicate Payments, Split by Structure...24 FIGURE 33. Share of Duplicate Payments, Split by Automation...24 FIGURE 34. Revenue Split of Respondents...25 FIGURE 35. Industry Split of Respondents...25 FIGURE 36. Role Distribution of Respondents...25

5 INTRODUCTION Improving your Accounts Payable performance is a journey along two connected paths: Centralization of operations (from decentralization to a shared service model) Automation of processes (from paper to e-invoicing through e-payables) While the progression is predictable, each stage along the way comes with new challenges. At each level of development, the baseline for good performance changes. As you centralize your roles and invest in new technology, you should become more efficient and effective. But by how much? And if you don t know how much of an improvement in performance is good, how do you know if your current performance is as good as it could or should be? And how do you know how much of an improvement you could expect as you evolve to the next stage in your development? Improving your AP performance requires continually measuring your progress and comparing it to each new peer set s operational benchmarks. As important as this assessment step is, few leaders do it today. Why? Because reliable data for each step of your journey hasn t been available without commissioning your own private study. Off-the-shelf benchmarking reports tend to treat all AP functions the same, splitting peers by size, industry or geography distinctions that don t speak to the fundamental challenges facing ever-evolving payables professionals. This report is designed to aid in your management decisions by segmenting data by the extent to which you ve centralized your organizational structure and automated your processes. The challenge in reporting data along those two variables is that not every organization proceeds to each stage at the same pace. 5

6 HOW TO USE THIS REPORT For each stage in development, along each track, we examine the key performance indicators (KPIs) you need to answer two fundamental questions: EFFICIENCY Invoices Per FTE EFFECTIVENESS PO First Pass Match Rate 1. Compared to my current peer group, where do I have room to improve and by how much? 2. If I mature either by further centralizing or investing in new automation technology how much of an improvement is realistic? The data in the subsequent pages are based on detailed assessments of nearly 250 AP departments. The analysis begins with an examination of early-pay discounts, enabling you to determine if your current performance is saving your business as much as your top peers. And then we expose how top performers achieve their success by examining eight Key Performance Indicators (KPIs). Paid-on-Time Cost Per Invoice Staff Leverage Ratios FIGURE 1. AP PERFORMANCE KEY PERFORMANCE INDICATORS Share of PO Invoices With a Mismatch Share of AP Transactions Requiring Corrections Share of Duplicate Payments HOW TO BUILD AND USE A MEASUREMENT DASHBOARD Our intent is for you to use these findings to build a credible snapshot of your department s current performance, and compare it to your peers. A dashboard can then be used to identify and prioritize the next action steps in your performance journey. Below is blank example we d encourage you to consider when benchmarking your AP function. KPIS PEERS TARGET RANGE CURRENT PERFORMANCE PERFORMANCE GAP NOTES EFFICIENCY Invoices Per FTE Paid-on-Time Cost Per Invoice Staff Leverage Ratios EFFECTIVENESS PO First Pass Match Rate Share of PO Invoices With a Mismatch Share of AP Transactions Requiring Corrections Share of Duplicate Payments FIGURE 2. EXAMPLE BLANK KPI DASHBOARD TEMPLATE 6

7 You should customize the table by adjusting each column to fit your needs: Column 1. Prioritizing KPIs. Measuring can be expensive and you may not easily or inexpensively be able to measure all eight metrics today. Pick the measures for which you can get reliable (i.e., consistent and highly valid) data and that most closely associate with the business issues you re trying to address. Don t measure for the sake of measuring. Column 2. Identifying your peer groups. Based on your current level of maturity, select the organizational structure and automation enablement that most closely resembles where you are today. If your AP function is partially centralized, but mostly manual, select the top quartile benchmarks for those two peer groups and set the difference between those two numbers as your target range. Column 3. Measuring your performance. Using IOFM s definitions to ensure apples-to-apples comparisons, measure your performance and add that data to the third column. (See appendix.) Column 4. Calculating gap. Simply subtract your data from the midpoint of your peers data range. For easy reference, color coding this column can be helpful: consider green if you re at or near the top tier range, red if you re closer to the bottom quartile, and yellow if you re somewhere in the middle. Column 5. Adding relevant comments. All numbers need context. Are your staff leverage ratios artificially high because of a recent acquisition or recent hire/departure of staff? Use this column to notate the data for future reference. 7

8 ADDITIONAL NOTES: It is best practice to set goals from the start by determining what you plan to do with the dashboard results. Waiting to come up with even a high-level action plan until the results are tabulated can lead to finger pointing and could derail the performance improvement effort from the start. Options to consider: If your efficiency measures are solid (yellow with a few greens), but your effectiveness measures are weak (mostly red, with only a few yellows) it may mean your process is too fast and you re are at risk of making duplicate payments and tripping regulatory fines. Adding staff and/ or tightening internal controls may make sense. Alternatively, if your effectiveness metrics are all top tier, but you re operating inefficiently, your controls may be too tight. Consider Assumed Receipt (especially for materials, repairs and operating expenses) or Evaluated Receipt Settlement. And if you re no better than average across the board today, there are probably low-cost process improvements you can make before considering taking on significant operational or technology investments. There are countless ways to improve AP performance. The goal of this report is to help you quantify your opportunities for improvement and, when ready, help you justify the business case for the next stage in your development. PEER GROUPS To enable you to best match your current level of maturity, every data point in this report is split into two peer groups: Organizational Structure Decentralized: Operations distributed throughout businesses; no single AP department Partially centralized: Some AP functions operate together, but many are still scattered across the business Centralized but not a shared service: All AP functions work in a single group, but AP is not operating jointly with other related functions, such as procurement Shared services: All AP functions are combined and working in tandem with all other related operational functions, including procurement. Automation Enablement Limited Automation: No more than 20% of invoices received electronically Moderate Automation: 21-69% of invoices received electronically Significant Automation: At least 70% of invoices received electronically 2017 IOFM, Diversified Communications. No part of this publication may be reproduced, stored in a retrieval system or transmitted by any means, electronic or mechanical, without prior written permission of the Institute of Finance & Management. 8

9 WHERE DOES MY JOURNEY BEGIN? Roughly, one-quarter of AP functions are no more than partially centralized and one-quarter are fully centralized within a Shared Service Center (SSC). That means that half of all organizations fit between those two extremes. When analyzing automation, the overall sample was split into thirds, using electronic receipt of invoice as the key variable. Shared Services Center 28% Centralized - not a Shared Service 48% Partially centralized 17% Decentralized 7% FIGURE 3. RESPONDENTS SPLIT BY DEGREE OF CENTRALIZATION Significant Amount 33.3% Moderate Automation 33.8% Limited Automation 32.9% FIGURE 4. RESPONDENTS SPLIT BY DEGREE OF Within the largest cluster of AP functions, those that have centralized operations but are not consolidated into a SSC, levels of automation vary significantly. Top performing members of that group receive 75% of their invoices electronically, enabling a great deal of automated efficiency. However, bottom performers, within the same organizational structure bucket, receive only 10% of their invoices electronically slowing potential automation enablement. IOFM has found that comparing AP functions based on the extent to which they receive invoices electronically is a good proxy for automation maturity for two reasons. 1) The more invoices received electronically, the more automation can be enabled; and, 2) e-invoicing tends to be one of the first processes addressed when investing in automation. 9

10 The two figures below illustrate the corresponding stair-step correlation between the two tracks: centralization and automation. Figure 5 illustrates top quartile and median automation enablement levels at each stage of centralization. Figure 6 provides a more detailed comparison. N=224 SHARE OF RESPONDENTS THAT RECEIVE THEIR INVOICES ELECTRONICALLY 100% 75% 50% 25% 50% 85% 75% 59% 65% 40% 20% 20% N=224 16% 52% SHARE OF RESPONDENTS 31% 44% 39% 50% 0% 25% 7% 19% 7% 8% 3% Top Quartile Median Limited Automation Moderate Automation Significant Automation Decentralized Centralized - not a Shared Service Partially centralized Shared Services Center Decentralized Centralized (not part of a SSC) Partially centralized Shared Services Center FIGURE 5. CORRELATION BETWEEN CENTRALIZATION AND, TOP PERFORMERS FIGURE 6. CORRELATION BETWEEN CENTRALIZATION AND PEER GROUP PERFORMANCE SPLIT SHARE OF INVOICES RECEIVED ELECTRONICALLY Average 29% DECENTRALIZED PARTIALLY CENTRALIZED CENTRALIZED, NOT PART OF A SHARED SERVICE SHARED SERVICE Top Quartile 50% Median 20% Bottom Quartile 5% Average 30% Top Quartile 59% Median 20% Bottom Quartile 2% Average 43% Top Quartile 75% Median 40% Bottom Quartile 10% Average 56% Top Quartile 85% Median 65% Bottom Quartile 25% N=224 FIGURE 7. CORRELATION BETWEEN CENTRALIZATION AND, BY PERFORMANCE 10

11 CAPTURING EARLY PAY DISCOUNTS The easiest way to know if your AP function is operating at a high level is to determine whether you re successfully capturing early-pay discounts. This section will evaluate three keys to consider: 1. Potential Share of invoices offering an early pay discount 2. Opportunity Typical percent discount offered 3. Results Share of discounts captured Spoiler alert: There s a huge untapped opportunity here for many AP functions. POTENTIAL FOR EARLY DISCOUNTS The first question is: How big is the potential for savings by improving your processing time and capturing early-pay discounts? For most organizations, the opportunity resides in a relatively small number of invoices (5% or less). However, it should be noted that this number could potentially be larger if procurement had greater confidence that early payments could be made consistently. SHARE OF INVOICES OFFERING DISCOUNTS DECENTRALIZED PARTIALLY CENTRALIZED CENTRALIZED, NOT PART OF A SHARED SERVICE SHARED SERVICE SHARE OF RESPONDENTS 0% 7% 15% 15% 12% 1-5% 64% 59% 47% 51% 6-10% 14% 8% 14% 8% 11-15% 0% 5% 8% 7% 16-20% 0% 10% 7% 5% 21-25% 0% 0% 4% 7% More than 25% 14% 3% 6% 10% FIGURE 8. SHARE OF INVOICES OFFERING DISCOUNTS, SPLIT BY STRUCTURE SHARE OF INVOICES OFFERING DISCOUNTS LIMITED MODERATE AUTOMATON SIGNIFICANT SHARE OF RESPONDENTS 0% 15% 9% 16% 1-5% 52% 47% 55% 6-10% 12% 15% 8% 11-15% 9% 6% 5% 16-20% 6% 12% 2% 21-25% 2% 3% 6% More than 25% 5% 9% 7% FIGURE 9. SHARE OF INVOICES OFFERING DISCOUNTS, SPLIT BY 11

12 OPPORTUNITY FOR EARLY DISCOUNTS The second question is: How big is the opportunity for savings? For most organizations, the opportunity is about 2% of a typical invoice. So, the significance of the opportunity is dependent on the size of your typical invoices and total spend. PEER GROUP DECENTRALIZED PERFORMANCE SPLIT Average 2% Top Quartile 2% Median 2% Bottom Quartile 1% SHARE OF INVOICES RECEIVED ELECTRONICALLY PEER GROUP LIMITED PERFORMANCE SPLIT Average 2% Top Quartile 2% Median 2% Bottom Quartile 1% SIZE OF DISCOUNT PARTIALLY CENTRALIZED Average 2% Top Quartile 2% Median 2% Bottom Quartile 1% MODERATE Average 2% Top Quartile 2% Median 2% Bottom Quartile 1% CENTRALIZED, BUT NOT PART OF A SHARED SERVICE AVERAGE SHARED SERVICE AVERAGE Average 2% Top Quartile 2% Median 2% Bottom Quartile 1% Average 2% Top Quartile 2% Median 2% SIGNIFICANT Average 2% Top Quartile 2% Median 2% Bottom Quartile 1% N=182 FIGURE 11. TYPICAL SIZE OF DISCOUNT, SPLIT BY Bottom Quartile 1% N=180 FIGURE 10. TYPICAL SIZE OF DISCOUNT, SPLIT BY STRUCTURE 12

13 SHARE OF DISCOUNTS CAPTURED The third question is: How often are you able to capture discounts? And this is where there are significant opportunities for many AP departments. While top performers (who report capturing between 85% and 95% of opportunities) are doing an impressive job, the majority of AP departments have a lot of room for improvement especially those that are the least centralized and are the least automated. (Note: For this question in particular, quartiles are more accurate indicators than averages, which are artificially low due to a number of organizations reporting very low capture rates.) PEER GROUP PERFORMANCE SPLIT SHARE OF DISCOUNTS CAPTURED PEER GROUP PERFORMANCE SPLIT SHARE OF DISCOUNTS CAPTURED Average 33.4% Average 52.9% DECENTRALIZED Top Quartile 84.8% Median 4.0% LIMITED Top Quartile 90.0% Median 55.0% Bottom Quartile 0.8% Bottom Quartile 3.5% Average 57.4% Average 58.5% PARTIALLY CENTRALIZED Top Quartile 90.0% Median 60.0% MODERATE Top Quartile 93.5% Median 80.0% Bottom Quartile 36.5% Bottom Quartile 5.0% Average 65.7% Average 74.2% CENTRALIZED, NOT PART OF A SHARED SERVICE Top Quartile 95.0% Median 85.0% SIGNIFICANT Top Quartile 96.5% Median 91.0% Bottom Quartile 40.0% Bottom Quartile 75.0% SHARED SERVICE AVERAGE Average 66.3% Top Quartile 94.0% Median 90.0% N=147 FIGURE 13. SHARE OF DISCOUNTS CAPTURED, SPLIT BY Bottom Quartile 39.5% N=147 FIGURE 12. SHARE OF DISCOUNTS CAPTURED, SPLIT BY STRUCTURE 13

14 EFFICIENCY: HOW FAST IS YOUR PROCESS? The top concern among AP leaders is speed. Departments are being pressured to do more with less. So how do you know if you re operating as efficiently as you should? The first metric to consider is the number of invoices per FTE (calculated by dividing the total number of invoices by your total headcount). INVOICES PER FTE One of the most common questions we get at the Institute of Finance & Management is, Am I over or understaffed? One way to answer that question is to look at the number of invoices you re being asked to process. The more decentralized you are, the harder it is to process invoices quickly. Similarly, the lack of automation can hinder your speed. With significant automation (in which at least 70% of your invoices are received electronically, enabling workflow automation), a single professional can process almost 23,000 invoices annually. But when the vast majority of invoices are paper, even the best organizations struggle to hit one-quarter of that number. ANNUAL NUMBER OF INVOICES PER FTE 22,756 19,889 8,600 10,938 1,350 3,600 Level of Automation Low High Average Cost Per Invoice Limited Automation Moderate Automation Significant Automation 14

15 PEER GROUP PERFORMANCE SPLIT ANNUAL NUMBER OF INVOICES PEAR FTE PEER GROUP PERFORMANCE SPLIT ANNUAL NUMBER OF INVOICES PEAR FTE Average 1,597 Top Quartile 8,600 DECENTRALIZED Top Quartile 2,238 Median 1,597 LIMITED Median 3,600 Bottom Quartile 1,350 Bottom Quartile 957 Top Quartile 19,889 Average 12,844 MODERATE Median 10,938 PARTIALLY CENTRALIZED Top Quartile 13,810 Median 7,822 Bottom Quartile 5,506 Top Quartile 22,756 Bottom Quartile 4,591 SIGNIFICANT Median 9,887 CENTRALIZED, NOT PART OF A SHARED SERVICE Average 12,424 Top Quartile 13,500 Median 8,600 Bottom Quartile 3,600 Bottom Quartile 4,813 N=83 FIGURE 15. INVOICES PER FTE, SPLIT BY Average 26,564 SHARED SERVICE AVERAGE Top Quartile 31,190 Median 14,300 Bottom Quartile 5,714 N=147 FIGURE 14. ANNUAL NUMBER OF INVOICES PER FTE, DETAILED PEER GROUP ANALYSIS, SPLIT BY STRUCTURE 15

16 PAID ON TIME Once an organization has a critical mass of invoices to process, automation enables on-time payments. Approximately 29% of respondents with significant automation report paying their non-po invoices on time at least 96% of the time compared with only 13% of those with only moderate automation. Decentralized functions, and those with limited automation, tend to have relatively high paid on-time rates. However, this can largely be attributed to the relatively low number of invoices groups that, on average, receive less than 45,000 invoices annually. (All other respondents average more than 265,000 invoices annually.) 46% 46% 53% 55% 37% 35% PO Non-PO Limited Automation Moderate Automation Significant Automation FIGURE 16. SHARE WHO PAY > 90% OF THEIR INVOICES ON TIME, SPLIT BY PAID ON TIME FREQUENCY PO DECENTRALIZED PARTIALLY CENTRALIZED CENTRALIZED, NOT PART OF A SHARED SERVICE SHARED SERVICE SHARE OF RESPONDENTS Less than 50% 8% 3% 5% 3% 50%-75% 8% 10% 12% 8% 76%-80% 8% 18% 5% 19% 81%-85% 15% 5% 12% 5% 86%-90% 8% 15% 16% 19% 91%-95% 8% 21% 29% 24% 96%-99% 46% 23% 18% 21% 100% 0% 5% 4% 0% N= 227 FIGURE 17. PAID ON TIME (PO), SPLIT BY STRUCTURE 16

17 PAID ON TIME FREQUENCY PO LIMITED MODERATE AUTOMATON SIGNIFICANT SHARE OF RESPONDENTS Less than 50% 7% 0% 4% 50%-75% 13% 9% 9% 76%-80% 12% 11% 11% 81%-85% 10% 8% 10% 86%-90% 12% 27% 12% 91%-95% 17% 29% 27% 96%-99% 26% 15% 23% 100% 3% 2% 3% N= 227 FIGURE 18. PAID ON TIME (PO), SPLIT BY PAID ON TIME FREQUENCY PO DECENTRALIZED PARTIALLY CENTRALIZED CENTRALIZED, NOT PART OF A SHARED SERVICE SHARED SERVICE SHARE OF RESPONDENTS Less than 50% 13% 13% 8% 11% 50%-75% 27% 8% 14% 15% 76%-80% 0% 24% 7% 6% 81%-85% 0% 11% 9% 15% 86%-90% 13% 11% 14% 18% 91%-95% 33% 16% 25% 13% 96%-99% 13% 16% 19% 18% 100% 0% 3% 4% 5% N= 233 FIGURE 19. PAID ON TIME (NON-PO), SPLIT BY STRUCTURE 17

18 COST PER INVOICE A third way to calculate your AP efficiency is by determining how much it cost to pay each invoice. IOFM calculated this measure by dividing each practice s total labor cost by the total number of invoices processed. While this number does not include all expenses overhead, automation expenses, etc. we ve found that a simple calculation allows for more consistent apples-to-apples comparisons to other AP functions. The two variables of this metric were answered by a total of 29 respondents in our sample, making it difficult to divide the data in meaningful ways and retain a statistically-significant sample. We do feel comfortable standing behind two cuts: 1. Cost savings can be significant. Overall, there s a three-fold difference between top and bottom performers. 2. Automation can help drive down costs. The worst-performing functions with significant automation are more efficient than the top performing AP groups with limited automation. COST PER INVOICE $8.78 $6.92 $5.81 $4.76 $3.41 $2.87 $2.44 $1.77 Level of Automation Low High Average Cost Per Invoice Limited Automation $7.90 Moderate Automation $4.31 Significant Automation $

19 PAID ON TIME FREQUENCY PO LIMITED MODERATE AUTOMATON SIGNIFICANT SHARE OF RESPONDENTS Less than 50% 14% 6% 13% 50%-75% 16% 22% 6% 76%-80% 6% 16% 7% 81%-85% 14% 7% 7% 86%-90% 13% 14% 12% 91%-95% 14% 22% 26% 96%-99% 19% 12% 22% 100% 4% 1% 7% N= 233 FIGURE 20. PAID ON TIME (NON-PO), SPLIT BY PEER GROUP PERFORMANCE SPLIT COST PER INVOICE PEER GROUP PERFORMANCE SPLIT COST PER INVOICE ALL RESPONDENTS Average $5.97 Top Quartile $2.44 Median $3.11 Bottom Quartile $7.20 LIMITED Average $7.90 Top Quartile $5.81 Median $6.92 Bottom Quartile $8.78 N= 29 FIGURE 21. COST PER INVOICE, OVERALL MODERATE Average $4.31 Top Quartile $2.87 Median $3.41 Bottom Quartile $4.76 SIGNIFICANT Average $3.40 Top Quartile $1.77 Median $2.44 Bottom Quartile $5.54 N=27 FIGURE 22. COST PER INVOICE, SPLIT BY 19

20 STAFF LEVERAGE RATIOS While Cost Per Invoice can help you determine if you re over/under staffed, it s also important to know if you re staffed with the right roles. NUMBER OF SPECIALISTS PER MANAGER There s no right or wrong staff mix, thus the lack of quartile analysis for this metric. The key is to make sure that your ratio of senior talent to junior talent is in line with your peer groups below. Generally, the more mature your AP function, the steeper the pyramid. 3.7 Decentralized Partially Centralized Centralized, Not a Shared Service Shared Services Center FIGURE 23. MANAGER TO SPECIALIST RATIO, SPLIT BY STRUCTURE PEER GROUP LEAD/SHARED SERVICES LEADER DIRECTOR MANAGER SPECIALIST/ AP PROCESSOR OTHER (MAIL ROOM, VENDOR MASTER, CUSTOMER SERVICE AND AUDIT) SHARE OF RESPONDENTS DECENTRALIZED 0% 2% 17% 65% 15% PARTIALLY CENTRALIZED 5% 3% 12% 58% 22% CENTRALIZED, NOT A SHARED SERVICE 2% 4% 12% 67% 15% GROUP SHARED SERVICE GROUP 7% 2% 9% 65% 17% N=229 FIGURE 24. STAFF RATIOS, SPLIT BY STRUCTURE PEER GROUP LEAD/SHARED SERVICES LEADER DIRECTOR MANAGER SPECIALIST/ AP PROCESSOR OTHER (MAIL ROOM, VENDOR MASTER, CUSTOMER SERVICE AND AUDIT) SHARE OF RESPONDENTS LIMITED MODERATE SIGNIFICANT 5% 3% 10% 59% 23% 5% 3% 11% 61% 19% 6% 3% 10% 66% 15% N=229 FIGURE 25. STAFF RATIOS, SPLIT BY AUTOMATON 20

21 EFFECTIVENESS: HOW GOOD IS YOUR PROCESS? How fast you can process an invoice is only part of the goal of your performance improvement journey. How effective you are at processing is the counterbalance. It does you no good to process at a lightning pace if you re making errors, paying redundant invoices, etc. This section will measure AP effectiveness across four metrics: PO first pass match rate Share of PO invoices with a mismatch Share of AP transactions requiring corrections Share of duplicate payments Improving your effectiveness is much harder than improving efficiency. Increasing investment in automation can help you process invoices faster. However, improving your effectiveness the quality of your process requires maturing the relationship with procurement and the rest of the business. In the end, there s a natural cap on how much improvement AP can do alone. PO FIRST PASS MATCH RATE The first step in ensuring a quality AP process is making sure the PO matches the invoice. The more often it does, the less room there is for error. However, the more invoices you re processing, the harder it is to maintain high levels of performance. Generally, top performers match their POs at least 90% of the time; bottom performers hit that mark closer to 70%. PEER GROUP PERFORMANCE SPLIT PO FIRST PASS MATCH RATE PEER GROUP PERFORMANCE SPLIT PO FIRST PASS MATCH RATE Average 85% Average 82% DECENTRALIZED Top Quartile 92% Median 85% LIMITED Top Quartile 95% Median 85% Bottom Quartile 78% Bottom Quartile 72% Average 83% Average 81% PARTIALLY CENTRALIZED Top Quartile 95% Median 86% MODERATE Top Quartile 90% Median 80% Bottom Quartile 75% Bottom Quartile 75% CENTRALIZED, BUT NOT PART OF A SHARED SERVICE Average 81% Top Quartile 90% Median 80% Bottom Quartile 70% SIGNIFICANT Average 79% Top Quartile 90% Median 80% Bottom Quartile 70% SHARED SERVICE Average 79% Top Quartile 87% Median 80% Bottom Quartile 70% N=212 FIGURE 27. PO FIRST PASS MATCH RATE, BY STRUCTURE, SPLIT BY N=212 FIGURE 26. PO FIRST PASS MATCH RATE, BY STRUCTURE 21

22 SHARE OF PO INVOICES WITH A MISMATCH To further measure against PO first pass match rate, it s important to know what percentage of PO invoices those mismatches represent. Below, we share the distribution of PO mismatches. SHARE OF PO INVOICES DECENTRALIZED PARTIALLY CENTRALIZED CENTRALIZED, NOT PART OF A SHARED SERVICE SHARED SERVICE SHARED SERVICE SHARE OF RESPONDENTS 0% 13% 0% 7% 4% 1%-10% 58% 50% 55% 48% 11%-20% 4% 20% 14% 24% 21%-30% 17% 20% 11% 12% 31%-40% 0% 0% 2% 8% 41%-50% 4% 0% 2% 0% More than 50% 4% 10% 9% 4% N= 233 FIGURE 28. SHARE OF PO INVOICES WITH A MISMATCH, SPLIT BY STRUCTURE PAID ON TIME FREQUENCY NON-PO LIMITED MODERATE AUTOMATON SIGNIFICANT SHARE OF RESPONDENTS 0% 13% 3% 4% 1%-10% 58% 52% 40% 11%-20% 4% 21% 24% 21%-30% 17% 17% 8% 31%-40% 4% 0% 12% 41%-50% 4% 0% 0% More than 50% 0% 7% 12% FIGURE 29. SHARE OF PO INVOICES WITH A MISMATCH, BY STRUCTURE, SPLIT BY 22

23 SHARE OF PO INVOICES REQUIRING CORRECTION The third stage of measuring effectiveness is to determine the share of PO invoices requiring a correction. Top performers usually don t have to touch more than 2%-3%; however, bottom performers often have to correct one in 10 PO invoices. This not only slows down the process, but also invites errors. PEER GROUP PERFORMANCE SPLIT SHARE OF PO INVOICES REQUIRING CORRECTION PEER GROUP PERFORMANCE SPLIT SHARE OF PO INVOICES REQUIRING CORRECTION Average 6% Average 6% DECENTRALIZED Top Quartile 3% Median 5% LIMITED Top Quartile 2% Median 3% Bottom Quartile 10% Bottom Quartile 10% Average 6% Average 9% PARTIALLY CENTRALIZED Top Quartile 2% Median 3% MODERATE Top Quartile 3% Median 8% Bottom Quartile 10% Bottom Quartile 15% CENTRALIZED, BUT NOT PART OF A SHARED SERVICE Average 7% Top Quartile 2% Median 5% Bottom Quartile 10% SIGNIFICANT Average 8% Top Quartile 1% Median 5% Bottom Quartile 10% SHARED SERVICE N=212 Average 6% Top Quartile 2% Median 5% Bottom Quartile 10% N=212 FIGURE 31. SHARE OF PO INVOICES REQUIRING A CORRECTION, SPLIT BY FIGURE 30. SHARE OF PO INVOICES REQUIRING A CORRECTION, SPLIT BY STRUCTURE 23

24 SHARE OF DUPLICATE PAYMENTS The fourth stage of measuring effectiveness is to determine if your department is making duplicate payments. Without slowing down the process to a halt, accidentally paying the same invoice twice is inevitable. But the goal is to limit the odds of redundant payments. Most organizations make this error less than 1% of the time. Those with the most significant automation investment are most successful in reducing this risk. SHARE OF PO INVOICES DECENTRALIZED PARTIALLY CENTRALIZED CENTRALIZED, NOT PART OF A SHARED SERVICE SHARED SERVICE SHARED SERVICE SHARE OF RESPONDENTS Less than 1% 60% 63% 59% 63% 1%-1.9% 13% 24% 17% 15% 2%-2.9% 13% 5% 7% 9% 3%-3.9% 7% 5% 8% 1% 4-4.9% 0% 0% 3% 3% 5% or more 7% 3% 6% 9% N= 233 FIGURE 32. SHARE OF DUPLICATE PAYMENTS, SPLIT BY STRUCTURE SHARE OF PO INVOICES LIMITED MODERATE AUTOMATON SIGNIFICANT SHARE OF RESPONDENTS Less than 1% 61% 60% 66% 1%-1.9% 15% 15% 19% 2%-2.9% 10% 8% 5% 3%-3.9% 7% 4% 3% 4-4.9% 4% 1% 1% 5% or more 1% 11% 5% N= 233 FIGURE 33. SHARE OF DUPLICATE PAYMENTS, SPLIT BY 24

25 APPENDIX This section provides additional insights to help interpret the findings, specifically: Survey demographics Survey questions 19% 20% SURVEY DEMOGRAPHICS The data was gathered from 248 AP leaders, via an online survey tool, between May 26, 2017 and June 16, The margin of error for these results is +/- 6% points at the 95% confidence level. That is, in 95 cases out of 100, the results may vary within a range of 6% points above or below the reported data. 23% 14% 23% Split by size, just over 42% of respondents organizations generate $1 billion in annual revenue. Five industries accounted for 60% of the respondents to the survey. No other single industry (categorized below into other ) accounted for more than 5% of the overall sample. Under $50 million $1 billion to $5 billion $50 million to $499.9 million Over $5 billion $500 million to $999.9 million FIGURE 34. REVENUE SPLIT OF RESPONDENTS Just over half of the respondents are AP managers 87% are in AP leadership positions (leads, directors, managers, supervisors) 53% SHARE OF RESPONDENTS 40% 19% 14% 6% 10% 10% 17% 15% 4% 2% 2% 2% 2% 2% Manufacturing Health Care and Social Assistance Education Services Finance and Insurance Public Administation (Government) Other Manager Director Supervisor Specialist Leader Controller CFO Vice President FIGURE 36. ROLE DISTRIBUTION OF RESPONDENTS Other FIGURE 35. INDUSTRY SPLIT OF RESPONDENTS 2017 IOFM, Diversified Communications. No part of this publication may be reproduced, stored in a retrieval system or transmitted by any means, electronic or mechanical, without prior written permission of the Institute of Finance & Management. 25

26 RELEVANT SURVEY QUESTIONS & DEFINITIONS The following is a list of the survey questions and definitions used to gather the data in this report. We suggest referencing it when calculating your own data to ensure apples-to-apples comparisons to the benchmarks provided. EFFICIENCY MEASURES Invoices Per FTE This metric was calculated. First, the number of invoices were totaled. (Respondents provided the number of PO, non-po, invoice/check requests, and other invoices). Second, the number of FTEs were totaled. (Respondents provided the number of shared service leads, AP directors, AP managers, AP specialists/processors, and other defined as: includes mail room, vendor master, customer service and audit). And then those two totals were divided by each other. Paid on Time Rate Respondents were asked to identify the range that best represents their organization s Paid On Time Rate, from date of invoice to ready-to-pay. Cost Per Invoice This metric was calculated. First, the number of invoices was totaled. (Respondents provided the number of PO, non-po, invoice/check requests, and other invoices). And then we divided that number by the total labor cost (defined as: approximate annual cost of labor across all AP departments salary and wages only, not benefit costs). Staff Leverage Ratio Respondents provided the number of shared service leads, AP directors, AP managers, AP specialists/processors, and other defined as: includes mail room, vendor master, customer service and audit. The ratio was calculated by summing the total of each staff level and then reporting it as a percentage of the total. Manger-to-specialist ratio is simply the total number of reported managers divided by the total number of specialists/processors within each peer group IOFM, Diversified Communications. No part of this publication may be reproduced, stored in a retrieval system or transmitted by any means, electronic or mechanical, without prior written permission of the Institute of Finance & Management. 26

27 EFFECTIVENESS MEASURES PO First Pass Match Rate Respondents were asked: Thinking about your AP department s PO Invoices processed during the most recent fiscal year, approximately what percent were successfully matched to the PO on the first attempt? Share of PO Invoices With a Mismatch Respondents were asked: What percent of your PO invoices have a mis-match on the first pass? Share of AP Transactions Requiring Corrections Respondents were asked: Among your annual volume of AP transactions, approximately what percent requires any type of correction after the transaction has been processed? Share of Duplicate Payments Respondents were asked: Among your organization s payments over a fiscal year period, approximately what percent are duplicates? 2017 IOFM, Diversified Communications. No part of this publication may be reproduced, stored in a retrieval system or transmitted by any means, electronic or mechanical, without prior written permission of the Institute of Finance & Management. 27

28 ABOUT THE INSTITUTE OF FINANCE & MANAGEMENT Accounting and finance professions have each undergone nothing short of a complete transformation since the Institute of Finance & Management (IOFM) was founded in Since then, our mission has been, and continues to be, to align the resources, events, certifications, and networking opportunities we offer with what companies need from the accounting and finance functions to deliver market leadership. IOFM empowers accounting and finance professionals to maximize the strategic value they offer their employers. Our enduring commitment to serving the accounting and finance professions is unmatched. IOFM has certified over 25,000 accounting and finance professionals and serves several thousand conference and webinar attendees each year. IOFM is proud to be recognized as the leading organization in providing training, education and certification programs specifically for professionals in accounts payable, procure-to-pay, accounts receivable and order-to-cash, as well as providing key tax and compliance resources for global and shared services professionals, controllers, and their finance and administration (F&A) teams.